Global LNG sector has been hit by LNG demand decline, supply overhang, and Covid-19-induced economic slowdown worldwide. Due to sharp fall in in oil prices, spreads between oil-indexed long-term LNG contracts and spot contracts have reduced considerably, making it difficult for LNG producers to balance revenues by covering up weaker spot-prices with higher priced long-term contracts.

Further, fall in gas prices has added to difficulties for LNG suppliers and upstream gas producing companies. Significant low gas prices and LNG supply glut, may lead to delays or cancellations of upcoming LNG projects. Most upcoming liquefaction projects secure investments through firm long-term, supply-purchase agreements with gas consumers. Rapid decline in gas demand is affecting financing of capital intensive new liquefaction projects, leading to inordinate delays.

Delays in a few upcoming liquefactions plants is likely to slow down the capacity growth during the period 2020-2022. Capacity variations is primarily due to project delays in some of the major projects such as Ras Laffan-NFE, LNG Canada and Port Arthur Phase 1. Majority of the projects, impacted due to COVID-19, are in pre-construction stages, where the approvals or FIDs have been delayed by a year or two – until conditions improve.

However, there is a still a positive aspect to this overall scenario. Global LNG oversupply as well as low LNG prices could encourage new countries and companies to start importing LNG. These new entrants would contribute to LNG industry growth in the future. Also, sustained low LNG prices is likely to encourage several gas importing countries to switch from coal and oil to cleaner natural gas.